Fool's Eye View

[ March 6, 2000 ]

AltaVista -- It's All Free!

By Nigel Roberts (TMFNigel)

Chippenham, Wiltshire -- The search engine AltaVista has thrown down the gauntlet and is planning to offer "almost free" access to the Internet. They will charge a one-off "membership fee" of about £35 and then an annual fee of £10. Users will then call an 0800 telephone number and be able to surf the net for as long as they like without having that ticking clock in the back of their minds.

The aim is to launch the service in the next few months, but it will be limited initially to only 500,000 customers, as they want to ensure that they are able to cope with the expected demand. This move really speeds up the race for "nearly free" Internet access in the UK -- recently British Telecom (LSE: BT.A) announced a flat-rate connection fee of £9.99 a month for unlimited off-peak Internet phone access, which now looks a poor, second-rate offer. BT are also planning to offer unmetered call packages, called Surftime, and which any ISP can offer to its customers. This will be here soon -- once Oftel has given its approval.

AltaVista is an American company primarily owned by venture capital firm CMGI (Nasdaq: CMGI) and Compaq (Nasdaq: CPQ). It already offers a similar service in the USA where you get completely free access, but you have to put up with a continuous stream of adverts passing over the top of your computer screen. In the UK the offer seems to be different, and it does not seem that users with be forced to watch adverts. Offering free telephone calls is likely to be very expensive: can e-commerce and advertising really cover this? We will have to wait and see. It is believed AltaVista will team up with MCI WorldCom (Nasdaq: WCOM) to deliver the service.

It is certain that this service will be a huge hit with Internet users, who will sign up in their millions if they can: the real issue will then be whether AltaVista can cope with the demand. Will users find their connection crawling so slowly that the ticking of the clock will be replaced by screams as users shout at their computer screens while they wait for web pages to load?

There has been no response from Freeserve (LSE: FRE), whose shares have fallen this morning (albeit from a closing high on Friday). The immediate reaction is that this must be bad news for Freeserve, but as we have been saying for a long time, Internet connection is not the real core of Freeserve's business model. They are aiming to set themselves up as the prime UK Internet portal. Free access to the Internet will encourage more and more users to log on for more and more time. The move by AltaVista will, perversely, probably be a huge benefit to Freeserve in the long run. Maybe it will give them the opportunity to give up on offering connection to the Internet at all, and concentrate on being the Yahoo! (Nasdaq: YHOO) of the UK.

The offering of nearly free Internet access in the UK will give a massive boost to all of the UK's Internet businesses that derive or aim to derive most of their revenues from e-commerce or advertising. Imagine a time just a few months from now when we will be permanently logged on to the Internet; think how much more surfing and buying you will do then! This should give a boost to the UK's Internet business, and also a further boost to Internet share prices!

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